WASHINGTON (Reuters) -- President Barack Obama, flanked by auto executives, proposed the first U.S. regulation of auto emissions in a bid to reduce climate-warming greenhouse gasesand lower dependence on foreign oil.

The proposal would require the U.S. passenger vehicle fleet to average 35.5 miles per gallon by 2016, saving 1.8 billion barrels of oil. It would also instruct the EPA to regulate tailpipe emissions for the first time while defusing efforts by California and 13 other states to set stricter standards on their own.

The initiative marks the strictest plan ever for increasing fuel standards for passenger vehicles, sharply raising pressure on struggling automakers to make more efficient cars and trucks.

"Right now, the rules governing fuel economy in this nation are inadequate, uncertain and in flux," Obama said in his address from the White House. "We will avoid an inefficient and ineffective system of regulations that govern our automakers."

Obama said the plan would give carmakers new certainty about federal regulatory policy and permit them to better plan for the future as struggling domestic companies restructure.

"The status quo is no longer acceptable," Obama said. "We have done little to increase fuel efficiency of America's cars and trucks for decades."

The proposal, if finalized, would also resolve a longstanding dispute between California and the government over the state's attempt to regulate emissions to curtail global warming.

The Obama administration said California would yield to the new federal policy and that a series of lawsuits around California's efforts led by the auto industry would be dropped.

U.S. and overseas automakers -- including General Motors, which is on the brink of bankruptcy -- voiced support of the plan.

ENLARGE Detroit automaker chiefs Alan Mulally of Ford, bottom, GM's Fritz Henderson and Chrysler's Robert Nardelli listen during President Obama's Rose Garden announcement. Photo credit: REUTERS/Larry Downing

Joy of certainty

"GM and the auto industry benefit by having more consistency and certainty to guide our product plans," GM CEO Fritz Henderson said in a statement.

Other auto leaders on stage were Ford's Alan Mullaly, Chrysler's Bob Nardelli, the UAW's Ron Gettelfinger, Toyota's Jim Lentz, Honda's John Mendel, BMW's Friedrich Eichiner, Nissan's Dominique Thormann, Daimler's Dieter Zetsche, Mazda's Jim O'Sullivan and Volkswagen's Stefan Jacoby, according to the White House.

Toyota's Lentz said the single national standard will enhance vehicle choice for consumers.

The new program will add about $600 to the price of producing a vehicle compared with the current law, which requires automakers to achieve a fleet average of 35 mpg by 2020, a 40 percent increase over today's performance.

U.S. auto companies fought significant increases in fuel standards for decades before Congress and the Bush administration agreed to stricter targets in 2007. Some vehicles, most made by overseas manufacturers, already meet or exceed the standards set to be proposed.

In March, the government said fuel-economy standards for all U.S. light vehicles will rise 8 percent to an average of 27.3 mpg for the 2011 model year.

Under that timetable, cars will be required to travel an industry average of 30.2 miles on each gallon of fuel, up from 27.5 mpg, and light-truck standards will increase by 1 mpg, to 24.1 mpg.

California had sought a waiver from federal environmental law to impose its own regulations to cut auto emissions, but the Bush administration would not permit it. Also, auto companies sued to stop California on grounds the initiative would create a patchwork of rules if other states followed suit instead of a single national fuel efficiency standard.

California Senator Barbara Boxer, chairman of the Environment and Public Works Committee, called the development "good news for all of us who have fought long and hard" to reduce global warming and reduce U.S. dependence on imported oil.

Opening the door

The administration in April opened the way to regulating emissions by declaring climate-warming pollution a danger to human health and welfare, in a sharp policy shift from the Bush administration.

The new policy would give automakers flexibility to meet the standards and would weigh the impact on the environment of carbon-based fuels and other vehicle systems that emit emissions, like air conditioners.

"This could be the breakthrough we've been looking for on clean cars," said David Friedman, research director of the clean vehicle program at the Union of Concerned Scientists.

The plan assumes average gas prices of $3.50 per gallon by 2016, which administration officials hope will help push consumers into more fuel-efficient cars and trucks.

Automakers are aggressively pursuing better hybrids and electric cars. But declines in gasoline prices in the later half of 2008 have revived sales, in some cases, of less efficient pickups and SUVs.

To help lift the industry out of its sales slump, Congress is considering legislation that would offer consumers as much as $4,500 to trade in older, less fuel-efficient models for vehicles that get sharply higher gas mileage.

Chrissie Thompson contributed to this report.